This study aims to conceptually identify the circular causal-relationship which is structured between downsizing and technological innovation in organization. First, through the literature review concerning downsizing and (technological) innovations, we have outlined the conceptual building blocks and research boundaries in this field. Second, we used system thinking method to accomplish our research purpose. The research findings are as follows. First, the promotion of financial resources by downsizing have trade-off relations that have negative of effects in short terms, but positive effects in long time. Second, workforce reduction by downsizing usually has negative influence on employees. Third, capital reduction by downsizing generates not only the climates of cost-cut but also the fact that although the climates may increase economic performance in short terms, it may interrupt technological innovations in long terms. In conclusion, this theses suggests that the relationship of downsizing and technological innovations have complex causal and feedback structures. Therefore, the results of this thesis propose that the argument or practices of downsizing with partial emphasis is very dangerous. Finally some limitations are also discussed.